Second LNG terminal: Bid winner in poor financial health, lacks experience

Consultant points to deficiencies in its technical evaluation report.

ISLAMABAD:

The board of directors of Sui Southern Gas Company (SSGC) has given approval to the award of a liquefied natural gas (LNG) terminal contract to Akbar Associates despite the fact that a consultant raised questions about poor financial health and lack of experience of the bidder.

According to officials, the consultant had asked Akbar Associates, which won the bid for the construction of the second LNG terminal last week, to respond to 29 queries pertaining to the bid document. Some of the most glaring deficiencies pointed out by the consultant in its technical evaluation report were related to the financial and technical capability of the successful bidder.

According to the consultant, the Request for Proposals (RFP) required the bidder to provide a credible funding plan with contingency arrangements, appropriate equity support letters and project finance letters, if applicable.



However, Akbar Associates did not submit and project the budget/cost, capital structure, funding plan and bank documents in support of the commitment to financing the project. Despite that, it was awarded 60% of the total marks in this sub-section.

The financial statements for relevant sources of equity and letters for project financing submitted by Akbar Associates to establish financial capability of the group were ambiguous and the consultant said based on the information provided it was difficult to confirm that the lead sponsor had sufficient assets to fund the equity requirement.

The consultant also did not agree with the lead sponsor’s assertion that its proposal should be treated as 100% equity financing given its reliance on illiquid real estate assets.

Another anomaly was that in its original proposal a mix of debt and equity financing was proposed, but in response to the consultant’s queries, the company changed its stance to 100% equity financing, which was a violation of rules.

The consultant said equity financing based on assets would require divestment or at least support letters from banks confirming availability of the money, which was not provided. The group was only capable of raising $9-12 million from its balance sheet.

“Here the question arises how the lead sponsor (Akbar Associates), which is 80% equity holder, will be able to finance a project estimated to cost around $400 million,” an official asked.

None of the three Pakistan-based companies of the Akbar Associates Group had submitted financial statements for the year ended June 30, 2014 as per the RFP requirement, creating suspicion about the financial health of these companies.

In spite of all these deficiencies, Akbar Associates was given 15 out of 25 marks, though it should not have been allocated any score in this sub-section, officials said.

There were other shortcomings as well that were related to the technical competence of the company.

The group’s business partners lacked relevant experience such as operation and maintenance, re-gasification facilities, etc. However, marks were given to them merely on the basis of claim/statement without availability of any supporting information or evidence such as pipeline design, route identification, 95% availability of plant and operation, maintenance plans, etc.

The completion time given by Akbar Associates was 26 months against the RFP requirement of 24 months.

The discrepancies highlighted by the consultant raise doubts about the entire bidding process and lead many to ask whether an unqualified bidder was deliberately picked by the consultant despite its own observations.

Talking to The Express Tribune, a top SSGC official acknowledged that the financial health of Akbar Associates was not better than the second highest bidder, but said the former’s bid was the lowest.

He said the successful bidder would have to furnish a bond of $10 million and the company had arranged financing of $350 million from China.

He denied that companies of the group were in poor financial health, saying the company had submitted all the required information.

Published in The Express Tribune, May 12^th, 2015.

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